Friday, April 2, 2010

More on the 'Success' of EU's Emissions Trading System.

According to The Financial Times, CO2 emissions in the EU declined by 11 % in 2009, thanks to the global economic crisis.

The 11 per cent decline means that companies will be left with millions of euros worth of surplus carbon allowances, which were awarded to them for free by member states. They can either sell those allowances on the open market or bank them for use in later years, when the reduction targets become more stringent.
Such surpluses have kept the ETS carbon price at €13 per ton, less than half what many analysts say is necessary to encourage investments in alternative energy. That has stoked concern that the ETS has gone astray by lavishing windfall subsidies on industrial companies rather than creating incentives for them to invest in low-emissions technology.
Ms Ulset argued that too much attention was being focused on the carbon price. “As long as you achieve the target, it doesn’t matter if the price is low or high,” she said. “As soon as the economy picks up, emissions will, too.”

But the price of carbon does matter. As soon as the economy picks up, so will emissions, because the low carbon price has yet again failed to encourage investments in cleaner technologies. There must be a price floor and ceiling in the system, whereby the ECB or another institution buys and sells permits to stabilize the price. Moreover, why not aim at exceeding instead of meeting the target when the former is economical and the market is playing ball? What we have now is yet another year of free handouts to major polluters in the ETS.